Make sure that you boot the USB disk at system startup, i.e. when you on your computer. That means the BIOS of your computer has to be set to try to boot from USB before it boots from hard drive and the stick has to be inserted before hard drive booting takes place.

The usual procedure from within Ubuntu is to use Startup Disk Creator. With that you just select the Ubuntu image or LiveCD and the USB-Media and go ahead. See picture below:

If I use "Universal USB installer" then will the resulting flash drive be able to run a tryout of OS or it can also be used for installing ubuntu (overwrite or dualboot with windows) ?
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Gaurav SharmaOct 5 '12 at 7:15

Quoted: The recommended way to install Ubuntu from a USB flash drive is to use the usb-creator program, point it at a ISO image of a Ubuntu installation CD that you have downloaded, and let it create a bootable USB that you can use instead of the CD.

From what I see, you have downloaded an ISO file and burnt it to a USB stick. In other words, you have created a liveUSB. And, you expect it to install Ubuntu inside of Windows 7. That is only possible if you have downloaded a WUbI installer. To install Ubuntu using a WUbI, you can follow this link.

Thanks guys! I actually tried all your suggestions. But the situation remains the same. I downloaded wubi. When the installation approached near the end, there appeared error and the installation could not complete.
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J. N.Jan 22 '12 at 8:36

@Jesse If the "operating system not found" error happens when attempting to boot from the USB flash drive and not otherwise, it's unlikely that changing BIOS settings would help. In this case, the problem is that the USB flash drive is not bootable.
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Eliah KaganJan 9 '13 at 4:19